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Friday February 23rd, 2024

Sri Lanka state salary bill down to 55-pct of taxes in early 2023

ECONOMYNEXT – Sri Lanka state salary bill as a share of taxes has fallen to 55 percent of taxes in the first four months of 2023, from 72 percent last year, official data shows.

Sri Lanka collected taxes of 742.5 billion rupees up to April 2023 and the salary and wage bill was 303.3 billion rupees. Pensions were a further 105.9 billion rupees.

“Expenditure on salaries and wages of public servants decreased by 4.0 percent due to the retirement of large number of public servants at the end of 2022 while due to the same reason, expenditure on pension payment increased by 6.3 percent,” the finance ministry said in a report.

Sri Lanka’s state salary bill started to go up steeply from 2015 under so-called ‘revenue based fiscal consolidation’ where ‘spending based consolidation’ (cost-cutting) was abandoned.

As a result, while tax collections went up, spending also went up from around 17 percent of GDP to around 20 percent of GDP and deficits were not controlled.

A key cost item is also the interest bill. Sri Lanka has high interest rates due to monetary instability coming from output gap targeting and flexible monetary policy.

Sri Lanka from 2015 also started to target an output gap by printing money after the IMF taught the trigger happy agency to calculate potential output, blowing the balance of payments apart. Stabilization measures were imposed triggering higher interest rates and growth shocks.

In 2020 extreme ‘macro-economic policy’ was deployed adding tax cuts to money printing (rate cuts with inflationary open market operations).

Strict spending based consolidation has been operated in the last two years under President Ranil Wickremesinghe and Treasury Secretary Mahinda Siriwardana in addition to tax increases (revenue based fiscal consolidation).

A part of the correction is coming from inflation and currency depreciation, and nominal salaries will eventually go up. To have lasting corrections Sri Lanka’s state has to be be allowed to trim down, including the military, analysts say.

One of the assumptions behind the ‘revenue based fiscal consolidation’, a cookie cutter solution advocated by the International Monetary Fund, is that spending around 20 percent is perfectly fine for a ‘developing country’ and no effort is made to cut costs.

Classical economists had pointed out that in a democracy, revenue based fiscal consolidation is a nonsensical concept.

“Past experience in Ceylon, which is in line with experience in virtually all parts of the world, is that in a democratic set up political and other pressures are heavily on the side of more and more spending by the government,” economist B R Shenoy told Sri Lanka in a report commissioned by ex-President J R Jayewardene in 1966 when revenue was already above 20 percent of GDP.

“When Revenues increase, under the weight of these pressures, expenditures too increase to meet, or
even exceed, revenue collections.

“In Ceylon during the past seven years revenues rose by 45 per cent and Expenditures charged to Revenues by 48 per cent.

“There is a real danger that any programme for increased Revenue collections may be attended by a corresponding increase in the consumption expenditures of the government, and little may be left of the additional revenues to cover Budget deficits.”

Sri Lanka’s was was taking 20 percent of revenue, undermining private savings and investment, which was much higher than Germany (13.7-pct) and Japan which 13.9-pct at the time, Shenoy pointed out.

At the time also Sri Lanka was beset with forex shortages and import controls/import substitution due to central bank money printing to suppress rates.

Shenoy advocated a single anchor monetary regime (a floating rate) saying devaluations of soft-pegs were hit or miss, in an unusually advanced remedy before developed nations floated in 1971.

In 2023 Sri Lanka legalized another dual anchor conflicting regime called a ‘flexible exchange rate’ which is neither clean float nor a hard peg. As a lasting solution to the country’s monetary problems analysts have advocated taking away the central bank’s powers to deploy macroeconomic policy. (Colombo/Sept21/2023)

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Sri Lankans may need to wait for Monetary Board meeting minutes despite new Act

ECONOMYNEXT – Sri Lankans may have to wait more time to read the meeting minutes of the Central Bank’s Monetary Board, a top official said, despite a new act that has made the central bank to be more transparent and accountable for its decisions.

Many central banks including the United States’ Federal Reserve, India’s Reserve Bank, and Bank of Mexico release the minutes of their monetary policy meeting to ensure transparency.

The new Central Bank Act passed by the Parliament in line with the guidance by the International Monetary Fund (IMF) includes measures for Sri Lanka’s central bank to be more transparent and accountable.

These measures include releasing the Monetary Policy Report every six months and the first such report was released on February 15.

However, the central bank has not taken a decision to release the minutes of the Monetary Board meetings on the monetary policy.

“Going forward, one day this could happen,” Chandranath Amarasekara, Assistant Governor at the Central Bank told reporters on Wednesday (21) at a media briefing.

“Right now, we have just started working on the new Central Bank Act. We are not there yet. There is no such decision on releasing minutes yet.”

The central bank in the past printed billions of rupees to keep the market interest rates artificially low and provide cheap funding for successive governments to propel a debt-driven economy.

It’s decision, however, led Sri Lanka into an unprecedented economic crisis in 2022 with sovereign debt default.

It also propped up the rupee currency artificially in the past to maintain a stable exchange rate at the expense of billions of US dollars. The move also contributed for the economic crisis and later the central bank was forced to allow over 60 percent depreciation in the rupee in March 2022.

However, none of the top central bank officials was held responsible for wrong decisions to hold interest rates artificially low with money printing and propping up the rupee. (Colombo/Feb 23/2024)

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Amid mass migration, Sri Lanka to recruit volunteers as English teachers

ECONOMYNEXT- Sri Lanka is planning to appoint foreign and expatriate volunteers to teach English for Sri Lanka students, the Ministry of Higher Education said, amid thousand of teachers migrating to other countries after the island nation’s unprecedented economic crisis.

Over five thousand teachers have left the country with the Education Ministry permission using the government’s circular of temporarily leaving state jobs while tens of thousands of teachers have left the country without informing the relevant authorities, Education Ministry officials say.

That had led to an acute teacher shortage in the country.

Suren Raghavan, the State Minister for Higher Education said the shortage has aggravated because most of the graduates who have an English degree become writers and join the private sector due to higher salary.

“They do not join government schools. This is a problem all over the country which is why we need to have an online system,” Raghavan told EconomyNext.

Separately he said on Thursday at a press conference that he had spoken to Canadian and Australian High Commissions to get the assistance of where their English teachers who have experience in teaching English as a second language in South Asia.

He also said that there is a number of teachers in the Unite Kingdom have shown interest in teaching English and they have experience in teaching in other Asian countries such as Burma and India while the teaching would be done free of charge.

The new move also comes at a time when the country’s English literacy rate is on the decline, according to the Minister.

President Ranil Wickramasinghe announced the English-for-all initiative three months ago with plans to improve English literacy at school and university level. (Colombo/Feb 23/2024)

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Sri Lanka tea production up 1.4-pct in Jan 2024, exports up 6.8-pct

ECONOMYNEXT – Sri Lanka’s tea production was up 1.4 percent to 18.73 million kilograms in January 2024, with high growns falling and low and mid growns rising, industry data shows.

High grown tea in January 2024 was 3.56 million kilograms, down from 3.36 million, medium growns were 2.6, up from 2.5 million kilograms and low growns were 12.56 million, up from 12.32 million kilograms last year.

Exports, including re-exports were up 6.88 percent to 18.76 million kilograms, industry data published by Ceylon Tea Brokers show.

Export earnings were reported at 102 million US dollars, up from 99.5 million dollars last year. The average FOB price was 5.45 US dollars a kilo down from 5.67 dollars last year.

Tea in bulk was 8.5 million kilograms valued at 12.79 billion rupees, tea in packets was 7.8 million kilograms valued at 13.1 billion rupees and tea in bags was 1.8 million kilos, valued at 5.06 billion rupees.

The top buyer was Iraq with 2.5 million kilos, up from 2.1 million last year followed by the UAE with 1.99 kilos, up from 1.86 million last year.

Russia bought 1.98 million kilos, down from 2.0 last year, Turkey bought 1.72 million kilos, from 2.3 million last year, while Iran bought 1.32 million, up from 614 million last year. (Colombo/Feb23/2024)

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